Agtech must abandon the unicorn fantasy, says Syngenta Ventures’ Michael Lee

Venture capital remains an important driver of innovation in agriculture, but the sector must adopt a fundamentally different model from mainstream tech, according to Michael Lee, managing director at Syngenta Ventures.

Speaking to AgNavigator at World Agri-Tech London, Lee said too many investors and founders continue to benchmark agtech against software markets that routinely produce billion-dollar exits.

“Not everything is venture-backable, and that’s particularly true in agtech,” he said.

Unlike software markets, where IPOs and large-scale exits are more commonplace, most agtech Start-ups ultimately exit through acquisition by major agribusiness firms. Those deals are typically worth between $100m and $400m, placing a natural ceiling on returns.

As a result, Lee believes founders should think far more carefully about how much capital they raise.

“There’s a strong need for the little companies to raise substantially less than $50m,” he said.

The challenge, he added, is that expectations across the ecosystem were shaped by outlier deals such as Monsanto’s acquisition of Climate Corporation in 2013.

“The view at the time was that there were more billion-dollar exits out there. That hasn’t proven to be the case.”

Why valuations remain a concern

Lee said venture economics help explain why investors often seek opportunities capable of delivering 10x returns.

With management fees, portfolio losses and alternative investment opportunities all factored in, venture funds depend on a small number of outsized winners to generate returns.

“The reality is that two-thirds of companies fail in a typical venture fund,” he said.

That creates a tension in agtech, where the size of many exit opportunities does not always support venture-scale return expectations.

As a result, Lee said valuations remain one of his biggest concerns.

“What’s keeping me up at night is that valuations are still too high,” he said.

The disconnect, he argued, risks encouraging founders to raise more capital than their businesses can realistically justify and leaves less room for investors and entrepreneurs to generate returns at exit.

Biologicals, robotics and water top the opportunity list

Despite the challenges, Lee sees significant opportunities emerging across several areas of agricultural innovation.

Biological crop protection and biological inputs remain particularly attractive because they are increasingly favoured by regulators, consumers and growers seeking alternatives to conventional chemistry. By way of example, Syngenta has backed Danish biotech BioPhero which is developing an innovative, highly scalable way to produce insect pheromones via a yeast fermentation process (similar to beer brewing).

Robotics is another area attracting attention, especially in labour-intensive production systems where staffing shortages continue to drive demand for automation.

“Over the next few years we’re going to see robotics start to compete at cost with the labour they’re replacing,” Lee said.

Water management also represents a major investment theme as climate pressures intensify.

Pointing to declining water reserves across key agricultural regions, Lee said innovations that help growers optimise irrigation and improve water efficiency are likely to become increasingly important.

“Water is going to be massively interesting,” he said.

Among Syngenta Ventures’ portfolio companies is Verdi, an irrigation decision-support specialist operating across hundreds of thousands of acres in the western US, as well as Australia and Israel.

Regulation still favours the incumbents

Lee also warned that regulation continues to present a significant hurdle for Start-ups, particularly those developing new crop protection products.

While rigorous regulatory processes are necessary to ensure safety, he said larger companies are generally better positioned to absorb the costs and timelines involved.

“I think it’s very challenging for small companies,” he said.

For chemistry-focused Start-ups especially, long approval timelines can create a difficult funding gap between discovery and commercialisation, increasing pressure on already stretched balance sheets.

Keep burn low and partner strategically

For founders navigating an uncertain funding environment, Lee’s advice was straightforward: focus less on raising ever-larger rounds and more on extending runway.

“My old mantra is make sure you keep your burn rates low, ensure you have a long cash runway, and do that by keeping burn rates low rather than raising lots of money,” he said.

He also encouraged Start-ups to seek strategic partnerships where possible, arguing that collaborations with established industry players can provide commercial validation, reduce costs and improve access to potential acquirers.

“The empirical evidence is that partnering reduces your costs, increases your revenue, and increases your exposure to the potential end acquirer,” he said.